Spencer, City Council to discuss Reading water system options

Mayor Vaughn D. Spencer and City Council will explore a more-lucrative lease or the possible sale of the water system to help Reading avoid its looming fiscal cliff.

Those two options are among several that could help close a $15 million budget gap that will open each year beginning in 2015.

In a three-page memo given to council at an executive session Monday, Spencer requested both sides jointly begin what he called a comprehensive and objective assessment of all the city's options.

"These are things we can't do without the support of council; they have to be part of it," Spencer said later.

Council President Francis G. Acosta said council agrees the team effort is needed, and he will call for a Saturday session to give both sides time to fully hash out the process.

"We need an understanding how to proceed within the next 30 days," he said.

The Reading Area Water Authority has leased the system for 20 years, and it now pays more than $4 million a year. However, it also gives the city general fund another $5 million from ratepayers.

But that gift will go away in 2015 - creating one-third of the ongoing budget gaps - thanks to a state law requiring authorities to spend ratepayers' money only for the purposes for which they were created.

In the memo, Spencer said one option would be to simply charge a $9 million lease.

Another would be a sale, and a third would be a long-term lease with up-front money - such as the $200 million up front and the $500,000 annual payment Allentown will get by leasing its water and sewer systems.

But Spencer's memo also outlined three other options: keep raising taxes and fees; lay off 100 to 150 employees; or allow the city to default on its obligations and be placed in receivership.

Those options, Spencer said, "are absolutely unacceptable and, absent meaningful support from council, should be dismissed from further considerations at the outset."

Acosta said council has no official position on anything because everything is still up in the air, but selling would not be an option for some members.

The administration and council had met in October, but a December meeting was postponed and Spencer said he just wanted to make sure it got restarted in January.

"We need to get more options and to ask ourselves questions," he said.

Water authority Solicitor Michael A. Setley, asked about the memo, said, "It's tough to comment on what the city may or may not do."

Authority board member Eron Lloyd, who is also Spencer's assistant, said the process has just begun and no one knows what direction the city will take, but the city has to examine every option.

Selling or leasing the water system - called "monetizing assets" - would require a professional appraisal of its physical parts such as the water plant, reservoir, pipes and tanks. But it also would require an appraisal of its ongoing value as a business with 27,000 captive customers.

Spencer suggested a process for the assessment, as well as hiring a facilitator to keep the discussions among council members and the administration civil.

He also said parts of the process will require absolute confidentiality, so the administration and council need to establish procedures to prevent breeches.